February 2022 Market Report
- Las Vegas Real Estate Update - An Unprecedented Opportunity
- Potential Investment Properties
- Market Trend
- About the Fernwood Real Estate Investment Group
An Unprecedented Opportunity
02/24/2022 by Eric Fernwood
There are fears all over the news:
- Violent crime reaches new levels
- Oil rose to $105 per barrel, hitting 3-digits first time since 2014
- Russia invading Ukraine.
- Inflation hit 7.5%, the highest in 40 years
- Interest rates are expected to continue rising throughout 2022 and beyond
- Tech stocks valuations have collapsed by 30% on average
During inflation and uncertainty, money flows to safe-havens. One such haven is real estate. However, not just any real estate will do. The real estate has to perform well even during troubling times. Why are so many investors and corporations pouring money into Las Vegas real estate?
Appreciation Rate
Below is a chart showing appreciation of properties that conform to our property profile. As you can see, since 2013, the average appreciation was 15.25%. In 2021, conforming properties appreciated an unbelievable 35%.
Looking at 2021 appreciation, it is an astounding 35% or 2.74%/Mo!
Rent Growth
The chart below shows the average rent growth based on the year put into production.
Inventory
Over the preceding 12 months, inventory in the segment we target fell.
Institutional Investor Interest
Multiple institutional investors have stepped up efforts dramatically to enter the Las Vegas market. For example, Progress Residential, a large private REIT, aggressively makes offers to acquire single-family homes to add to their rental property pool. In Las Vegas, a Progress property typically charges 10%-20% higher than non Progress properties for rent. Due to their need to deliver as much profit as possible for their investors. This will push up the rents for these newly acquired properties, driving up the overall market rent. The fact that these large institutional ventures are paying top dollars to acquire Las Vegas homes shows that they believe there is still significant growth ahead for Las Vegas home prices and rents.
Because of this significant increase in institutional investor participation, we expect the prices and rents to rise even faster than expected at the beginning of the year.
If you ever wondered whether Las Vegas is a good investment location, you have your answer.
Where You Make Money
There are two ways real estate generates money. The first is cash flow, and the second is appreciation. I put together the simplistic example below showing two properties. Property A appreciates at 10% but has zero cash flow. Property B has zero appreciation but 10% cash flow. At the end of 3 years, with Property A, you have $99,300 to reinvest. With Property B, you have $21,000 to reinvest.
What is Driving Appreciation and Rent Growth?
- Jobs - There is a shortage of workers, and help wanted signs are everywhere. And, with over $20B in new construction underway, and another $5B to $7B announced, the demand for workers will increase, bringing more people to Las Vegas. The increasing demand will drive up prices and rents.
Blue State Exodus - Almost every day, I read another article about companies and people fleeing blue states due to high taxes or high costs. As more people flee, more people will come to Las Vegas for jobs and the low cost of living. Demand for housing will continue to increase, driving appreciation and rent for the foreseeable future.
Pro Business Environment - Nevada has no state income taxes, low property tax, low-cost property insurance, reasonable traffic, reasonable property prices, lower cost of just about everything. Las Vegas is investor-friendly. Evictions take less than 30 days and cost about $500. Another advantage Nevada offers businesses is low electricity cost. Las Vegas' commercial energy rate is less than 1/2 the cost of California.
Land Shortage - As you can see in the gif below, Las Vegas has reached its boundaries in many locations. And, little of what remains is suitable for residential housing. The high cost of land and the limited available land for expansion result in new homes' entry price in desirable areas being over $550,000. Properties that target our tenant pool today cost between $380,000 and $470,000. New homes will not dilute the supply of investment properties.
A question you may have is whether Las Vegas' economy will continue to do well. One of the reasons real estate is a safe heaven is that markets are like giant cargo ships; they change directions slowly. So, the conditions that make Las Vegas residential real estate a safe haven today are likely to remain so for the foreseeable future.
Taking Advantage of This Opportunity
Competition is fierce, with investors and corporations pouring funds into Las Vegas real estate. We've identified three niches where we can acquire good properties. However, first-year cash flow is likely only break-even before tax advantages in most cases. What are these niches? I will not be able to disclose them here because our market reports have a wide distribution, I do not want to reveal these niches to people who might decide to target these niches and increase competition for you. If you want to take advantage of this unprecedented opportunity, please contact us.
Below is a link to this month's list of candidate investment properties. Our proprietary data mining software selected these candidate properties from thousands of available properties, and this is just the first step in our multi-step validation process, as shown below.
Below are charts from our latest trailing 13 month market report, which includes January data. Remember that this data is only for the property profile that we target, not for the entire metro area. To see all the charts please click here.
|
Rental Statistics
|
Sales Statistics
|
|
Rentals - Median $/SF by Month
YoY rents grew an amazing 15.3% for January
|
Sales - Median $/SF by Month
YoY prices increased by a whopping 31.5%!
|
|
Rentals - List to Contract Days by Month
Median time to rent is about 18 days for January.
|
Sales - List to Contract Days by Month
Median days on market is only about 6 days for January.
|
|
Rentals - Availability by Month
This chart shows the average daily number of properties that were for rent in a particular month. Pre-pandemic level was about 1000 (units).
|
Sales - Availability by Month
This chart shows the average daily number of properties that were for sale in a particular month. It has hit record low month after month.
|
|
Rentals - Months of Supply
About 1.1 month of supply for our target rental property profile.
|
Sales - Months of Supply
Inventory stays at about half of a month. This is what is driving the sharp price increases.
|
© Cleo Li and Eric Fernwood, all rights reserved.
